Update (12/31/2022):
It seems that new users have trouble registering for the forum. The confirmation email never shows up. I’ve decided to phase out this forum and transition over to a new forum plugin. The new location is here:
https://earlyretirementnow.com/forum-3/
Policies – please read!
- Everyone can read posts, but to start a new topic or add a reply you’d need to register. To create an ID, please verify your email address. You will get a link at that email address and you can then pick a password.
- Be courteous to others. Treat others like you like to be treated. Discuss the issues. No ad-hominem attacks!
- It’s OK to include external links if they are relevant. But please avoid spamming! Please no affiliate links.
- Before starting a new topic, please check if that question/topic has been discussed before already and add to that discussion instead of starting a new topic.
- If you’ve written a cool blog post that you want to share with others please post this in the “Self-Promo” category only!
- Please read the usual Disclaimers and the Privacy Policy!
- The forum policies may be amended in the future!
I've invested about 20% of my retirement savings in private real estate notes through a bridge lender and earned about 10%pa with this method for the past three years without incident. The loans are interest-only and typically last 12 months but are sometimes extended for another 6-12 months. Combined loan-to-value ratios do not exceed 70% and the properties and borrowers are well vetted to limit the chance of defaults and to lose money if a foreclosure happens. I am looking for your thoughts on this. Is it too risky with a high likelihood of me losing capital in the long run? How do you think rising interest rates and other economic factors will affect this type of investing in the future?
It honestly sounds sketchy as hell. I don't have an answer but I have some questions you should ask:
Why can't these folks borrow from banks, hedge funds, business development companies, or any other organized lending organization for much less than 10%? How in an efficient market could REITs earn so much less in real estate than these website loans pay in interest? To what extent can you or the auditor you hire look at their books? How difficult would it be to create a spoof or fraud of one of these? Have you ever cashed completely out and received the amount of money you were due?
The borrowers are almost entirely real estate investors whose cash is already deployed. Good deals get bought up quickly and conventional lenders can take weeks to fund so these investors are willing to pay a premium for fast execution. The loans typically last 6-12 months at which point the borrower replaces them with conventional loans. I was able to completely cash out the two loans I had at maturity. I only did it because I was getting killed on the taxes so wanted to do future loans through a self-directed IRA that allowed this type of investment.
I have no experience with this kind of investment. I invest in Private Equity real estate where I am part of the equity holders. That's also risky but at least the companies I work with have a multi-decade track record of doing well in this space.
If you can make 10% p.a., more power to you. But a total loss is possible, so I hope you diversify over different projects. But of course, a large macro event like 2007-2009 could wipe you out.
